By Nick Worth
Pat Avery, president and chief executive officer of Prospect Global Resources, Inc., announced last week that his company has entered into an exclusivity arrangement for a $100 million investment with an affiliate of Apollo Global Management, LLC.
According to their website at www.agm.com, Apollo is “a leading global alternative investment manager.” The company further describes itself as “contrarian, value-oriented investors in private equity, credit-oriented capital markets and real estate, with significant distressed expertise” engaged in “deploying capital across the balance sheet of industry leading businesses, and seeking to create value for our investors throughout economic cycles.”
According to the press release from Avery, “funds managed by Apollo would purchase $100 million of newly issued 10 percent convertible second lien notes, expected to fund in the first half of 2013. Additionally, Apollo would have an option to purchase 16.7 million shares of Prospect Global common stock at an exercise price of $3 per share.”
This stock option is exercisable at any time through the closing of the notes transaction and, if exercised, would provide Prospect Global an additional $50,100,000.
Prospect Global intends to use the proceeds from the Apollo financing to continue development of its pro-posed potash mining facility being developed in Holbrook by the company’s wholly owned subsidiary, American West Potash.
The terms of the securities purchase agreement, which is still currently under negotiation, call for Apollo to purchase $100 million in aggregate principal amount of notes, with a $3 initial conversion price. The notes would have an annual interest rate of 10 percent, of which four percent would be payable in cash and six percent payable in kind in additional notes.
The notes are intended to be convertible at any time by the holders and can be converted by Prospect Global upon completion of the Holbrook project and the company’s common stock trading above two times the then-conversion price for a period of time.
As part of the agreement, Apollo will also appoint four directors to the Prospect Global Board of Directors and Prospect Global will appoint five directors to make a nine-member board.
The closing of the Apollo financing is subject to several conditions, including:
* Satisfactory completion of negotiations with Apollo.
* The execution of definitive documents.
* Completion of a bankable feasibility study that satisfies certain conditions. This study is expected in the first half of 2013.
* Approval by Prospect Global’s shareholders.
According to the press release, if the Apollo purchase of the second lien notes goes through and the stock option is exercised, the remaining cost to complete the project and the retirement of current debt is expected to be approximately $1.28 billion, the majority of which is expected to be funded with senior project finance debt. Senior debt is debt that takes priority over other unsecured debt and is the first to be repaid.
“Obtaining this financing will mark a significant milestone in our advancement towards construction of our potash mine,” said Avery. “Apollo is one of the world’s largest private equity firms, with significant experience in the natural resources and agricultural sectors, and has a history of successfully developing and financing large-scale capital projects.
“We look forward to a successful working relationship with Apollo as a long-term partner in the development of our American West Potash project,” said Avery.
Gareth Turner, senior partner of Apollo, said, “We believe American West Potash is a world-class project and have been impressed with the vision and capability of Prospect Global’s management. We share in their ambition to develop the first greenfield potash mine in the United States in over 30 years and bring this highly strategic resource into production, thereby creating thousands of jobs for American workers and providing significant benefits to the local economy and the state of Arizona, as well as to farmers throughout the world.”
“We look forward to working with (Prospect Global) on an exclusive basis as we strive to complete the negotiation, documentation and closing of this transaction,” said Turner.